Making sense of the euro and how to trade it

Making sense of the euro and how to trade it

The single currency of the euro is a political one in every respect as it is one which has no debt union, and an important consideration ahead of this week’s ECB meeting. With Italy threatening to be the next country to depart the EU remember the words of Draghi who said the EU would do everything to protect the currency. Will the same apply now? We will see.

00:00

Welcome and trading disclaimer

00:00

The host welcomes everyone to the webinar, acknowledging the different time zones of the audience. They emphasize the importance of the trading disclaimer, reminding viewers that trading is risky and they should never use money they cannot afford to lose.

00:28

Attendees and forex market overview

00:28

The speaker welcomes attendees from various groups including students from the ITS program, quantum users, and some first-time participants. They acknowledge the diverse audience and express appreciation for their presence. The session is about to focus on analyzing forex charts.

01:00

Price action and volume analysis

01:00

The speaker introduces the concept of analyzing both price action and volume activity in the market, a methodology known as volume price analysis that has been used for nearly 20 years. This approach helps confirm whether observed price movements are genuine. Additionally, the analysis incorporates fundamental news and the behavior of related markets to provide a comprehensive understanding of market conditions.

02:01

Three-dimensional market approach

02:01

The speaker explains that signals can arise from markets unrelated to forex, which can indicate changes in sentiment. They emphasize the importance of a holistic, three-dimensional approach to market analysis, considering sentiment and emotion as driving forces behind market movements. An example involving Vic’s and David is mentioned, with a promise to explain it later, along with a recommendation for a useful website.

02:39

Using sentiment indicators

02:39

The speaker introduces the concept of using emotion in trading, highlighting a website called Sentiment Trader that offers sentiment indicators primarily for stocks. They emphasize making emotion work for the trader rather than against them. The site provides a free newsletter and over 700 sentiment indicators, which can be useful for those transitioning from Forex to stocks or managing investments.

03:51

The discussion continues on understanding market emotions through identifying risk and safe haven currencies. By combining this knowledge with volume price analysis and indicators, traders can gain a significant advantage. Although success isn’t guaranteed, this approach is presented as more effective than what most current market traders employ.

04:30

Tracking currency flows and pairs

04:30

The discussion focuses on tracking money flows in the forex market by analyzing individual currencies and currency pairs. This approach helps identify market sentiment quickly. The current focus is on the British Pound, which experienced a significant sell-off yesterday.

05:03

British Pound sell-off and fundamentals

05:03

The market experienced a further sell-off driven by fundamental news related to GDP, causing lively price action before the London open, which is unusual. The current economic data is unfavorable due to the ongoing impacts of the virus. Additionally, it’s Bastille Day, commemorating the French Revolution, with some commentary on the persistent revolutionary spirit in France. Upcoming economic indicators include the ZEW economic sentiment for Germany expected before 10:00, although real-time updates from the source are not reliable.

06:09

Upcoming economic indicators

06:09

The speaker discusses the status of an indicator that has been downgraded from a top-level (red) status, though its significance remains high. They emphasize that in market analysis, besides technical, fundamental, and related market factors, political elements must also be taken into account.

06:42

Euro currency political context

06:42

The discussion focuses on the recent performance of the Euro, highlighting its significance during a politically and economically important week with the upcoming ECB meeting. Despite expectations of cautious trading before major news, the Euro showed extreme overextension and strong volatility. The speaker explains how currency markets can remain overextended longer than traders anticipate, drawing parallels with investor behavior in stocks like Tesla. Emotions fluctuate between excitement during gains and nervousness or hope during declines, emphasizing the importance of managing these emotions to trade effectively.

09:29

Euro’s political and economic tensions

09:29

The euro is described as a political and artificial currency created through collaboration among EU countries, lacking full features of a traditional currency such as debt union. This absence creates internal tensions between the northern bloc, including Germany and Finland, known as the ‘Frugal Four’ who prioritize surpluses, and the southern countries like Italy and Spain. These tensions persist until there is complete political and debt union within the EU. Recent fluctuations in the euro’s value are influenced by these underlying dynamics, with Germany playing a key role in the currency’s movements.

11:20

EU recovery fund and German influence

11:20

The discussion focuses on the political dynamics within the European Union, highlighting Germany’s influential role under Merkel’s leadership. A significant shift is noted with the introduction of a recovery fund aimed at supporting economically weaker countries like Italy due to the impact of the virus. Euro traders are advised to pay close attention not only to technical and fundamental analysis but also to political developments, as politics largely drives the euro’s value. The speaker references Mario Draghi’s famous commitment to do ‘whatever it takes’ to support the euro, emphasizing the currency’s resilience despite frequent negative predictions.

13:08

ECB decisions and political impact

13:08

The European Central Bank’s decision to implement more quantitative easing challenged established eurozone rules and sparked controversy, initially seen as a potential crisis for the euro. However, German Chancellor Angela Merkel’s shift to a more conciliatory stance, advocating support for severely affected countries like Italy, transformed the outlook and softened attitudes toward the euro. The discussion also highlights the perceived political nature of ECB President Christine Lagarde, who is viewed more as a political appointee than a traditional central banker, influencing how traders approach the euro. Additionally, the Italian Prime Minister Conte’s involvement and an EU summit focused on Italy’s situation underline the political complexities surrounding these economic decisions.

14:16

Italy’s challenges in the Eurozone

14:16

The speaker discusses Italy’s economic struggles since adopting the euro, highlighting how the country lost the ability to devalue its currency, which previously helped manage economic crises. Before the euro, the Italian lira was devalued periodically, making goods like shoes and food cheaper and benefiting travelers. The introduction of the euro has been disastrous for Italy’s economy over the past 20 years.

15:17

The speaker explains the recurring political debates in Italy about leaving the EU and the euro, noting that despite such flare-ups, Italians tend to rally around their country. Italy is described as a relatively young nation composed of distinct regions with different languages and cultures. The standardized Italian language is actually based on the Tuscan dialect, which helps explain the country’s complex political and cultural dynamics.

16:25

Italian regional identity and politics

16:25

The speaker explains the strong regional identity in Italy, where people identify more with their specific town or village than with the country as a whole. This is due to Italy’s complex history of being ruled by various foreign powers like the Papal States, Spain, and France. Italians have historically been loyal to their local area or ‘bell tower’ rather than a national identity. The speaker suggests this regionalism influences Italy’s political behavior, noting that if Italy were to shift its stance significantly, it could have major implications for the European Union. Currently, however, cooperation within Europe, including Germany, remains stable.

18:01

Euro outlook and technical analysis

18:01

The speaker discusses the current market sentiment, highlighting a collective optimistic feeling despite upcoming financial challenges like bills. The focus shifts to the euro’s recent surge and the upcoming interest rate announcement by Lagarde, emphasizing the political and legal nuances involved. From a technical analysis standpoint, the speaker reviews recent currency movements, noting a sell-off and potential upward trends by examining faster time frame charts, specifically mentioning a successful trade on the Euro Pound pair and referring to technical indicators used for the analysis.

19:03

Currency pairs trading signals

19:03

The speaker discusses a trading system set up on the 10-minute chart focusing on currency pairs, particularly the British Pound, Aussie Yen, and Euro. They highlight positive divergence on the Aussie Yen and note the Euro’s movement in a similar direction. The market conditions appear brighter compared to the previous night, with a significant sell-off on the British Pound. Volume and volatility spikes are linked to GDP data releases, with price action showing choppy behavior on the one-minute chart due to increased volatility during the London session.

20:07

The analysis continues with price consolidations and volatility patterns on the 10-minute chart during the London session. Despite fluctuations and volatility spikes, the British Pound continues to decline. The Euro shows uncertain direction, with price action indicating a potential reversal but still ambiguous, requiring further observation to confirm trends.

20:45

Price action summary and Q&A

20:45

The speaker discusses the current heavy selling pressure on the pound, indicating potential market movements. They invite viewers to ask questions via the chat box, promising to address them. The speaker mentions using multiple charting platforms, including NinjaTrader, MT4, and MT5, highlighting their extensive chart analysis setup.

21:18

Charting tools and solutions

21:18

The speaker introduces a question about running many chants on one machine and hints at having a suggestion and solution. They mention that their quantum users and forest program students are aware of this solution, and they prepare to have David explain the ‘buckets solution’.

By Anna Coulling – creator of volume price analysis